Cloud Business Model Triggers SAP Job Cuts

(Bloomberg News) SAP SE plans to cut about 2,200 positions, following a similar reduction last year as Europe’s biggest software company pivots its business toward less profitable applications delivered over the Internet to keep up with nimbler rivals.

The total number of jobs affected will amount to about 3 percent of SAP’s worldwide workforce of 74,000, according to personnel chief Stefan Ries. It’s uncertain how many jobs will go in the company’s home market of Germany.

“It’s not about cost savings but rather being fit for the future,” Ries said in an interview.

The downsizing, SAP’s second under Chief Executive Officer Bill McDermott, comes as sales of software sold to businesses under traditional licenses gives way to products they rent in an arrangement called cloud computing. Web-delivered software, which stretches payments over time, requires engineers with different programming skills and is putting a dent in profit margins at SAP, which is the biggest maker of applications for supply chain, financial and human resources management.

Rivals including Salesforce.com Inc. and Workday Inc. have attacked SAP’s customer base with business software delivered and updated online.

“Where the growth is, we must go,” McDermott said in an interview in Cernobbio, Italy, near Milan. “Where customers need us, we must go.”

Lifting, Shifting’

“If I have a great growth opportunity in Middle East and I have excess of capacity in U.S. or Germany, I am gonna offer those employees the opportunity to go to Middle East, to where customers need us,” McDermott said. “We are not eliminating jobs but lifting and shifting those assets.”

In addition to seeking new placements for the affected workers, SAP will offer voluntary severance and early retirement programs, Ries said. He declined to say how much the restructuring will cost the Walldorf, Germany-based company.

Shares of SAP fell 0.4 percent to 63.32 euros 2:19 p.m. in Frankfurt. The stock had advanced 9.1 percent this year through yesterday.

SAP, founded in 1972, isn’t alone among old-line tech companies in paring jobs amid a shift in technology buying patterns. International Business Machines Corp., Cisco Systems Inc., Hewlett-Packard Co. and Microsoft Corp. have each sliced tens of thousands of positions in recent years.

Closer to home, German engineering giant Siemens AG last month announced cuts of about 2 percent of its global workforce. Dismissing workers in Germany can be fraught with complication because of negotiations with employee works councils and legal protections for workers.

Ralf Herzog, the chairman of SAP’s works councils, said the groups received information Thursday afternoon about “a very high level” of job cuts. Since the program is “apparently voluntary,” SAP “seems to have learned from its experience” with last year’s job action, he said.

On a net basis, SAP has been increasing its headcount every year since 2010, according to data compiled by Bloomberg.